In this blog post, you'll learn how to calculate percent of sales along with few details like what is sales and why do you need to know it.
Let’s see how to calculate percent of sales but before that let’s learn some basics-
The percentage of sales to expenses method is the most common method of calculating the effects of sales on net income for budgeting purposes.
It's used to predict how much money will be available for expenses in the coming year. Historical figures are used to project future sales and costs.
Percentage of sales is a tool for forecasting and budgeting. You look at the historical cost of goods as a percentage of its sales and use that figure for the forecasted sales.
The percentage of sales method can also be used to forecast other balance sheet items closely associated with sales, such as inventory, accounts payable and accounts receivable.
Sales growth is usually calculated for a single company across two or more fiscal periods. It's also possible to develop net sales for an entire country or region during a designated period.
You would compare an earlier, lower sales period with a later, higher one. Generally, the two periods are also of a corresponding length. For example, you would not compare net sales from one quarter of one fiscal year with the whole year from another.
Instead, you might compare sales from two successive fiscal years ending on March 31st.
Calculating and analyzing sales growth can inform you about:
Your periodic financial performance. You will learn whether sales rose between two periods and, if so, by how much.
If you find that sales stagnated over time, you can adjust your future sales strategy to Your business' profitability.
Your performance is relative to competitors. Knowing how to calculate sales growth can tell you whether you are doing as well as or better than your peers.
It's essential to go beyond the quantitative data and talk to people you'll find that trends in their spending reflect what they think about the economic outlook.
Businesses look at sales as an indication of consumer sentiment. And we know how much influence consumers have over the national economy.
People spend less during these periods.
If your sales were higher in the same period last year, the economy, and not your sales strategy, may be to blame.
You'll need the net sales figures from the two financial periods you're comparing.
As such, you'll need either:
Keep in mind that your income statement may refer to net sales as "sales."
Is your small business growing or stagnating? One way to tell is to calculate your sales growth.
What is the percentage?
The percentage may also be referred to as "out of 100" or "for every 100." For example, you could say either "it snowed 20 days out of every 100 days", or you could say "it snowed 20% of the time."
A percentage may be written in a few different ways. One way to write or denote a percentage is to portray it as a decimal. For example, 65% represents 65 out of 100, or 45 per cent of the total amount.
You can find the decimal version of a per cent by dividing the percentage by
100. A per cent can also be shown by using a per cent sign or "%."
A percentage of sales is a measure of the ratio of the total sales of an individual item to the total sales of all items of a business or division.
There are a few different ways that a percentage can be calculated.
The following steps are commonly used to calculate percentages -
1. Determine the whole or total amount of what you want to find a percentage for
For example, if you want to calculate the percentage of how many days it rained in a month, you would use the number of days in that month as the total amount. So, let's say we are evaluating the amount of rain during the month of April, which has 30 days.
2. Divide the number that you wish to determine the percentage for
Using the example above, let's say that it rained 15 days out of the 30 days in April. You would divide 15 by 30, which equals 0.5.
3. Multiply the value from step two by 100
Continuing with the above example, you would multiply 0.5 by 100. This equals 50, which would give you the answer of 50%. So, in April, it rained 50% of the time.
How to calculate percent of Sales to Categories of Expenses
The following formula is used to calculate the percentage of sales that come from a given item.
% S = SI / TS *100
Where % S is the per cent of sales
SI is the sales of the item in question
TS is the total sales.
You may want to compare the percentage of sales to different categories of expenses in addition to total expenses.
Here is an example, using figures from a company's balance sheet:
Net sales = $450,000
Cost of goods sold = $228,000
Administrative expenses = $22,000
Sales expenses = $36,000
You want to know the percentage of sales to administrative expenses. Divide the administrative expenses by net sales, then multiply by 100:
22000 / 450000
22/450 = 0.0488
Now, Multiply 0.0488 by 100, which will get you 4.88%
You want to know the percentage of sales to sales expenses. Divide the sales expenses by net sales, then multiply by 100:
36000/450000
36/450 = 0.08
Now, Multiply 0.08 by 100, which will get you 8%
From the above example, you can see that sales expenses have a higher percentage of sales than do administrative expenses.
As a result, the company could do more to reduce sales expenses. The information becomes especially useful in comparing figures from previous years and making budgeting decisions for the future.
One way to change this ratio is by managing levels of sales and costs. The higher the sales, the lower the percentage of expenditure will be that goes into administrative costs.
When calculating the expense to sales ratio, take both fixed and variable expenses into account. This will include expenses such as rent, utilities or other factors.
When it comes to step costing, think of a variable cost that doesn't change steadily with increased volume. For example, a purchase discount may be implemented once a specific count has passed, say 10,000 units per year.
The cost is variable and changes to a different percentage of sales in response to a different volume level.
To start, subtract the net sales of the prior period from that of the current period. Then, divide the result by the net sales of the prior period. Multiply the result by 100 to get the per cent sales growth.
Below is a formula for how to calculate sales growth:
G = (S2 – S1)/S1 * 100 where S2 is the net sales for the current period S1 is the net sales for the prior period. Let's take a look at an example.
Porter's Auto Parts wants to figure its sales growth for the years ending March 31st, 2017 and March 31st, 2018.
The net sales for the former period were $201,000. The net sales for the latter period were $210,500.
The business had an annual sales growth of 6.2 per cent.
Here's the math:
S2 = 213,500 S1 = 201,000 G = (213,500 – 201,000)/201,000 100 G = (12,500)/201,000 100 G = 0.0622 * 100 G = 6.2 percent
A good growth rate is whatever business owners and stakeholders determine to be so. Small businesses that made less than $5 million had a 6.1 percent sales growth on average in 2017, said Sageworks. That was a drop from the 2016 growth rate of 6.9 percent.
So "good" can vary from year to year. Look at sales growth alongside your historical performance and economic and competitor growth.
So, I am sure now you know everything about how to calculate the percentage of sales.
Now, you can go and implement this formula in your business, and do tell me if it was helpful.
That's all for now! See you later with a different blog.
